In this episode, we are joined by labor and employment attorney Ron Chapman. Ron shares considerations for business owners to help navigate employee issues. We discuss crafting effective policies, distinguishing between employees and contractors, and exempt vs non-exempt classifications. Tune in for Ron’s tips for mitigating legal risks and safeguarding your business.
Listen to the full episode using the player below, or by visiting one of the links below. If you have any questions or would like to learn more, email us at info@byrdadatto.com.
Transcript
*The below transcript has been edited for readability.
Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real-world experiences, creating simplicity in 3, 2, 1.
Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Byrd.
Michael: Thanks, Brad. As a business and health care law firm, we represent clients in multiple business sectors, especially health care. This season we are diving deep into the exhilarating and terrifying process of opening a business. Our theme this season, Brad, is starting a business.
Brad: Now, Michael, for those, hearing this for the very first time, that’s just one season of four. What are the other seasons?
Michael: Yeah, the summary version because most have heard this in prior episodes, there’s four seasons to a business as we talk about it; there’s the building season, the operating season, the scaling season and the buying and selling season. And of course, this podcast season we’ve been living in the building season. [00:01:00]
Brad: That’s right. Well, Michael, before we bring our guest who’s sitting next to us in studio, have you ever driven your car into a pothole?
Michael: Why do I feel like this is a trick question? Yes, Brad. I’ve run over a pothole before.
Brad: Okay, when you did hit that pothole, did you harm your car?
Michael: I don’t. I have a couple of memories and our guest, or his wife, may be able to relate to this because we went to law school together. But I once, and this was before my truck days, in fact, this was a heavy influence on my truck days, I thought that a puddle after a heavy rain was something that I could just power through. And my car quickly was overwhelmed by about a two plus foot level of water and completely shut down. And that was actually the end of that car, but I have actually not ever had any serious damage from a pothole.
Brad: Okay.
Michael: But you’re from New Orleans, if I remember correctly, [00:02:00] like your Saints, the streets are really bad.
Brad: That hurts. Did you just compare my Saints to potholes?
Michael: Yes, Brad.
Brad: Although I’m sure you and I could analyze this, and my love for the Saints and even your love for the Cowboys might be like loving potholes.
Michael: Fair comparison.
Brad: That’s not why we’re here today, we’ll keep moving forward. As you mentioned in New Orleans our potholes are legendary. In fact, on some streets we used to call these potholes, tank traps, they were so big.
Michael: Okay. I have a lot of follow-up questions that I’m not going to ask about tank traps, I’ll just ask one. Have you ever hit one of these so-called tank trap potholes?
Brad: I have not, but several of my family members have and they’ve had their share of flat tires or smashed up rims. In fact, I know two family members who punctured their tires – they hit them so hard. I used to live by Audubon Park, for those familiar with New Orleans, and there was a pothole that was so big by my house. In fact, it was in front of my house, and you could actually stand in it. It was like two or three feet deep. [00:03:00]
Michael: Well, could you get out, Brad, if you stood in it?
Brad: Are you making fun of me, Michael?
Michael: Okay. All right, where are you going with this pothole talk?
Brad: Well, you know as noted in New Orleans growing up with potholes, life is tricky. I mean, basically you look like a drunk driver driving down the street, you had to swerve around every single pothole just so you wouldn’t hit it. But some Midwest town decided to have some fun with their giant potholes.
Michael: First of all, that sounds like a marketing campaign from New Orleans as an excuse for the swerving, maybe blaming it on the “potholes”. Well, tell me more about this Midwest town deciding to have fun.
Brad: Well, there’s a neighbor in this Midwest town that was frustrated with the slow response from the city to come repair this apparently giant pothole, so he just threw his, or placed his black leather recliner in this pothole. And the other neighbors thought it was so funny. They were inspired to kind of put some homey touches on it by resulting in basically a whole living room set. [00:04:00] So they put down a Christmas tree and speakers and even flooring in it.
Michael: Oh, wow. I’m down for that. That’s pretty funny.
Brad: And other neighbors, they actually found another pothole and they thought it was funny, so they got an entire set of a Barbie themed party, pool party, with Ken on the diving board and all the other Barbies around it with that one, basically kind of lemons to lemonade kind of thing.
Michael: Okay. I’m reluctantly going to ask you, Brad, does this have anything to do with our guest today?
Brad: I don’t know. I mean, he’s looking there trying to probably figure it out. Well, almost every business must have employees to grow and be successful. And when I was reading this story, I thought about today’s guest and his line of work. He helps employers traverse the rules and regulations A.K.A potholes, of employment.
Michael: Did you pull something trying to stretch that in there? Alright, well [00:05:00] we’re going to bring our guest on and get to some actual substance. So joining us today in studio for the first time is our friend Ron Chapman. Ron is a shareholder in the law firm, Ogletree Deacons. He’s actually on the board of directors. Ogletree Deacons is a national firm and we’ll let Ron give us a little bit more about his firm here in a few minutes. Ron graduated from law school at Southern Methodist University. He has his Behavioral Sciences, a political science degree, from Rice University. He is a nationally recognized strategic advisor in high stakes labor and employment matters. He’s a national speaker on employment law. He’s got all the trophies, recognized as Best Lawyer by D Magazine, best Lawyers in America, Super Lawyer, Chambers, and the College of Labor and Employment Lawyers, and he is a really good guy. Ron, welcome.
Ron Chapman: Thank you. Pleasure to be here.
Brad: Yeah. Well, Ron I think [00:06:00] we kind of live in the same neck of woods in Dallas. Have you or your family members ever hit a pothole so bad it damaged their car?
Ron Chapman: Not that they’ve admitted to me. I feel certain it has happened with either my wife or one of my two daughters, but I can’t say that they’ve ever admitted that to me. And I don’t believe I have, at least to the point of damage.
Brad: There you go. Just Michael who sunk his car.
Ron Chapman: Yeah.
Michael: Yeah. Well, the Lubbock pothole may have been like the New Orleans potholes. I’ll just leave it at that. Tell us Ron, about – just talk a little bit about Ogletree, introduce your practice and kind of the type of work you do for your clients.
Ron Chapman: You bet. So, Ogletree, as you said, is a labor and employment firm. That is our singular focus. We have roughly a thousand lawyers spread out over 55 different offices, both in the US and elsewhere outside the US. [00:07:00] We cover anything that touches the employer employee relationship, that could be both on the compliance and prevention front helping clients avoid those potholes that I’m sure we’ll talk about. And then on the back end, we also represent them in lawsuits or government investigations or audits or union campaigns, anything that’s an actual live dispute. So, think of it in two buckets. One being compliance and prevention, and one being handling disputes.
Brad: All right, so all across the board, but still just really laser focused on the employment side then.
Ron Chapman: Yeah. So with a thousand lawyers, we have the benefit of having hyper specialists on precise issues. So we can funnel issues to a designated subject matter expert. So if a client has a question about FMLA leaves of absence, we’re going to put them in in touch with someone who’s handled that issue, not 10 times, but a thousand times. So we funnel [00:08:00] work to the hyper specialist based on the subject matter.
Brad: That’s really cool. And if we need a hyper specialist about losing your car and potholes at Texas Tech, we know who to go to now. Well, as Michael kind of started this podcast, he was talking about, this season is starting a business, and we’re going to now focus from your perspective, from your specialty as a labor and employment law perspective. You know, we’d love for you to share with our audience that first piece of employment advice you give to someone when they’re about to tell you they’re about to start their business.
Ron Chapman: Well, I would tell them, and I do tell them weekly; it’s much easier and cheaper to keep you out of trouble than get you out of trouble. Once you’ve fallen into something it’s more complicated and more expensive to get you out of it. Whether that’s a lawsuit or a government audit or whatever the case may be, that’s going to cost more money and involve more of your time than setting it up right on the front end. So, I encourage folks to invest in that prevention and compliance on [00:09:00] the front end so that they don’t have to incur the cost on the back end.
Brad: What would be some of those like easy tidbits?
Ron Chapman: Yeah, policies, procedures, best practices, so get your forms right. What can and can’t go on an employment application, what you can and can’t put in an offer letter, what you should put in an offer letter, employee handbooks, employment contracts, non-compete agreements, all those sorts of things. Get them set up right on the front end, which really doesn’t take much time or money because they’re all basic forms. You just have to tailor them to the particular business, but get all that set up on the front end and then that makes for smoother sailing.
Michael: And then if you’re kind of, I’m trying to think of risk, and startups often have a lower level of initial number of employees, but I know that there’s some laws that kick in at a certain number of employees; do you have kind of a general guidance on your risk goes up once you hit this mark of employees and then that mark of employees?
Ron Chapman: Yeah, certainly. The [00:10:00] more employees, the more risk of an employment law issue. 15 employees is sort of the initial threshold, under 15, many of those laws don’t apply. At 15 many of the laws start to apply and escalate on up from there. But really you could have a dispute with an employee if you have one or two employees. I’ve had disputes with family run businesses between family members, so they can come up in any setting.
Michael: Cool. Well, so moving on a little bit. I want to talk about, at least in our world, something that is a hot topic that comes up a lot with the doctors and the dentists. So if a client is, is talking to you and trying to decide about bringing someone on as an employee versus an independent contractor, talk a little bit about things they should consider.
Ron Chapman: Yeah, so it’s probably the most common violation of employment law that I see, frankly, because most workers should be classified as employees. There are situations where [00:11:00] a contractor classification is appropriate, but most of the time they should be employees. So, the thing to keep in mind is every state has their own test, every government agency has their own test, and those tests change quite regularly. The Department of Labor just came out with a new rule, in fact. These tests change from time to time, so keeping abreast of them is sort of like playing whack-a-mole, but that’s when you get into the nitty-gritty. At a 30,000 foot level, the key issue is the degree of control the company is exerting over the worker. So, for example, if that worker has been at the company for more than six months, or has a company email address or isn’t working for other companies, but is working solely for one company, those are all indications that they should be classified as an employee and not a contractor.
Brad: Well, what if they said they [00:12:00] wanted to be an independent contractor?
Ron Chapman: It doesn’t matter. That’s like saying I want the sky to be green. I can’t make it green. I can’t change the law. The law is what the law is and that can’t be waived. I’ll say this, typically, clients who want to classify a worker as a contractor are doing so because they think they can save money. And my point to them is, whether they’re classified as an employee or a contractor affects how you pay them, but it doesn’t affect how much you pay them. We can back into the appropriate compensation arrangement once you tell me what your budget is. We just have to pay them differently, whether they’re set up as an employee or contractor,
Brad: It is just the number of times we’ll hear people tell us that, “but all the parties agreed that they wanted to do it this way.” And as you can imagine, there are a lot of different traps that are out there. Obviously, the misclassification of an employee is one of them, but what are some other traps that you see a business [00:13:00] run into with their employees?
Ron Chapman: Yeah. Well, number one would be not taking the time to set up the right policies and practices on the front end. I see this all the time. They think, “Oh, we’re too small, or we’re just getting started, or we’re under the radar screen. It’s not going to happen to us. We’ll worry about that later when we’re bigger, right now I got to focus on growth.” Whatever the excuse is, I get it, I understand it, particularly for serial entrepreneurs who are operating at such a fast pace. But again, a little bit of prevention can go an awful long way and save you a lot of money and heartache in the long term – so that would be number one. Number two would be what I call a right hand, left hand problem, where the HR team or whoever’s responsible for HR is the trained professional who knows how to deal with issues as they arise, but frequently that person is not brought into the loop.
Many of the lawsuits that we deal with involve behavior arising outside [00:14:00] of the context of HR. HR never knew about it. So, for example, an employee told a supervisor, “Hey, I may need a leave of absence.’ And that information never filtered back to HR or an employee complains to a coworker that another worker is continuing to ask her out on dates even after she said no, and that’s bothering her, but that information never makes its way to HR. So it’s the problem of folks outside of HR not relaying information to HR. The human resources department can only handle those things they know about. They’re trained professionals. They generally do a very good job of addressing issues when they’re brought to the attention of the department, but when they don’t know, they can’t fix it or even address it. So, what I like to emphasize to clients, particularly smaller employers is, educate your workforce. That they don’t need to know how to handle all these situations, but they need to know when to get it into the hands of the [00:15:00] people who can handle those situations. And you need to remind them of that periodically, not just put it in a policy or a handbook or something and put it in a desk drawer, but you got to reinforce that message through training, through regular reminders and whatnot.
Michael: I have a question I get from clients a lot. It’s kind of falls in this trap category Brad was talking about here. They’ll call me talking about their employees and they’ll say, “Well, you know, so and so is on salary, so they’re exempt.” And so, it feels like they have a misunderstanding of the overtime laws and the risks that are there, so can you talk a little bit about that?
Ron Chapman: Yeah. So there are lots of different exemptions. Let’s start with this. Every employee is entitled to overtime unless they are exempt from the overtime laws, so that’s what we mean when we say an exemption. [00:16:00] What are the exemptions? There are lots of them. One, for executive employees, that’s probably the easiest, right? Anyone in the c-suite, they’re an executive, they’re exempt, they’re paid on a salary. You don’t have to pay them overtime. Then there are more nebulous categories such as the administrative exemption or the learned professional exemption in other categories. The key there is that just because you pay someone a salary does not make them exempt. You may have to pay them a salary in order for them to be exempt, but that’s not the end of the test. The rest of the test involves things like how much independent discretion and judgment are they exercising on a day-to-day basis and various other fact specific issues that we’d need to delve into. But just paying them a salary, that’s only part of the equation. And unfortunately, it’s not as easy as just doing that.
Michael: Awesome. That’s very helpful. I’m going to just record that and hit [00:17:00] play next time, or just tell them to call you.
Brad: Yes, or forward the podcast.
Michael: Yes, so let’s move on to another thing Brad and I get to talk a lot about with our clients, and it’s just the hot topic with our small businesses so many times, and that’s the non-compete laws. Talk a little bit, there was a lot of kind of stuff going on last year, even starting around January of last year and into the year. Talk about what you’re seeing kind of across the country.
Brad: Can I answer that, because I was told since the FTC came out, non-competes are unenforceable everywhere.
Ron Chapman: Well, that’s their proposed rule, but that doesn’t make it law. So what Brad is talking about is, Federal Trade Commission came out with a proposed rule that would essentially ban non-compete disputes – non-compete agreements, make them unlawful. That’s not law, that is a proposed rule. Chances are, it probably will never go into effect, at least not in its current form. So under existing law, the enforceability of a [00:18:00] non-compete agreement varies wildly from state to state, wildly. So, for example, in California, they are essentially unlawful. Can’t happen – with very, very few exceptions. In contrast, in Texas, they’re mostly enforceable if they’re written the right way. So, not only those are sort of the opposite ends of the spectrum, but in between you have all sorts of nuances based on the stated at issue. In Illinois, you may have to have a salary threshold. It’s only enforceable if the person makes X dollars a year, or sometimes it requires a notice period that the employee has to have before agreeing to a non-compete agreement.
So, State law varies wildly. So when clients say, is this enforceable or not? I say, “Well, what State are we talking about?” Ana we’ll start from there. This comes up from employers on both ends, though. One, wanting to [00:19:00] protect their own client relationships and their own confidential information by having their employees sign non-compete agreements, but also when they’re hiring someone, they want to know what they’re getting into or should know what they’re getting into. So on their hiring checklist or interview checklist should be the question, are you a party to a non-compete or non-solicitation agreement with any prior employer? If so, we need to know about that. It doesn’t mean you’re not going to hire the person, but it means you want to evaluate that agreement and know what you’re getting into.
Michael: Have you guys gotten into kind of this garden leave concept, I know we saw it in Massachusetts and seems like that we’ve starting to see that concept pop up.
Ron Chapman: Yeah. That’s more and more common, particularly in physician contracts, which is probably what you’re referring to given your context. Yeah, that’s a common strategy for trying to get an enforceable agreement was essentially [00:20:00] put someone on leave rather than making them an ex-employee but prohibiting them from working for anyone else, which kind of feels weird. Rather than doing that, you just sort of put them on leave where they don’t have any job responsibilities and they can’t go to work for someone else.
Brad: You know, one of the things that for non-compete law, we’ve talked about this before, but it typically, there’s a lot of reasonableness to it and time and geographic scope and what the services are. How often do you see on your larger clients where they’ll have a footprint nationally, but their guy, Bob, is really in Texas and Oklahoma, but then they try to say, well, this is a non-compete nationally. Even though you’re only in Texas and Oklahoma, you can’t do this job for 12 months anywhere. And how do courts, knowing that every single state’s different, routinely or generally speaking, look at those national non-competes?
Ron Chapman: Not well. The courts are quite skeptical [00:21:00] of really broad prohibitions like that, and different clients have different philosophies. Some will want it as broad as possible, even if they know in their heart of hearts it’s not going to be enforceable to use it as a deterrent. And they figure, even if the judge won’t enforce it as written, the judge is going to reform or blue pencil or rewrite the agreement into something that is enforceable. So let’s start as broad as we can possibly justify, knowing that it may get narrowed down the road. Other clients are of the mindset that they want an agreement that’s enforceable, and that they know they have a high degree of being able to enforce that agreement and go into court so they know what they’re dealing with. I’ll have the discussion with a client about the pros and cons of both of those approaches and figure out what’s right for them. There’s no one size fits all advice. It really depends on the mindset of the company.
Brad: And so let’s narrow it down to our physician clients here on this piece, so let’s just pretend we’re in a state that it is enforceable and they’re like, you know, I would like to have a 200 mile non-compete from the city of [00:22:00] Dallas. And that’s because I get patients from all across the state. You know, what’s the kind of conversation you would have with that particular type of doc who wants such a, and I’ll say this to our audience members, that’s pretty aggressive, to have that huge of an area; how do you have those conversations on discussing that aspect of it?
Ron Chapman: So first of all, it’s not just where the employer gets patients from, where the practice as a whole gets patients from, it’s where that doctor is getting patients from. Where are those patients? So you’re going to have to show, not just that the practice has patients from all over, but that that doctor is getting patients from all over. 200 miles, particularly for a physician, is quite broad, because a court is very reluctant to limit the availability of health care to the general populace. So, a court’s going to look at that very skeptically, and it’s probably not going to apply. That’s a really good example of you have to know the industry you’re talking about. Health care is hyperspecialized, [00:23:00] you have to really know that area of the law. I’m talking to two experts in that area, so you know that better than anybody, but you have to know the context in which you’re working, and you can’t just give blanket answers across industries.
Brad: And I have one more follow up on non-competes. This is something we get often too from our clients is, “Well, I don’t really want to do a non-compete. I just want them to not to be able to go after my patients or my employees, but they can go wherever they want.” And so, for our audience members, I’m referencing the non-solicitation, how often do you see that utilized as a tool instead of the typical non-compete?
Ron Chapman: Probably more often than the non-compete, actually. Usually the agreement will contain both. Yeah. But the employer, if someone leaves, they’re more likely to try to enforce it if the non-solicitation provision is being violated because that has the potential to cause more damage than just setting up shop and competing. Legally, they’re [00:24:00] typically depending on the state, but typically they’re analyzed the same way, in terms, they have to be reasonable in scope and geography and all that, so there’s not much difference from a legal test, but factually it’s easier to convince a judge to enforce a non-solicitation provision than a broad non-compete provision.
Brad: That makes sense. Well, we really appreciate you spending time with us. So I’m going to hit you with one more question before we let you go. But obviously we’re talking about building something here, but for our audience members, what are some of the hot labor and employment law topics that they should be thinking about for this year, and this year being 2024?
Ron Chapman: Well, first on the list would be multi-state compliance. And if you have operations in multiple locations, you’re having to deal with the employment laws of multiple states. And unfortunately, employment law is something that varies greatly from state to state. So if you’re in multiple operations, you have to be aware of not just Federal law, not just the law of the home office, but wherever other locations you have as well. [00:25:00] So, we do a lot of work of helping clients navigate those multi-state issues and coming up with a set of policies and practices that complies with all of them, or tailoring their practices and policies for specific locations, so multi-state compliance would be number one. Number two it’s not so much a legal issue as a trend, and that is we’re seeing more and more complaints from current employees, not just former employees. So, folks are much more assertive about their rights these days. They’re more knowledgeable about their rights, or at least have heard buzzwords, so we see a lot more internal complaints that need investigation and or resolution. That’s always an interesting dynamic when you get a legal claim from a current employee and how does that play out given that you’re interacting with that person every day. So, we’re seeing a lot of those scenarios and helping clients walk through that.
Brad: So they just fire their person immediately?
Ron Chapman: No, they probably should not do that. At [00:26:00] least not without calling a lawyer first. There might be good reasons to fire the person. And you got a business to run, and you got to not be afraid of the legal ramifications if you’re in the right. So I’m a firm believer in addressing problem employees and running the business first, but let’s do what we can to minimize that risk in the process.
Michael: Follow up question to that, can I have you help me lodge a complaint against Brad?
Ron Chapman: Absolutely! I think there are several basis for that actually.
Brad: Well, that’s terrible, because that was going to be my last question against Michael, but did I hire you yet before?
Ron Chapman: No, I mean, first come, first serve. So, whoever wants to sign up,
Brad: You live closer to me. Michael, you live in that other city he can’t represent you.
Michael: Okay. Okay. Well that was awesome. We’re out of time. Ron, thank you so much for joining us today. It was amazing. We’ll go into commercial and on the other side, Brad and I can do a quick wrap up from our conversation today. But thanks for being here.
Ron Chapman: My pleasure. Thanks for having me. [00:27:00]
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Brad: Welcome back to Legal123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Byrd. Michael, this season, our theme is Starting a Business, and we really are camping out in the building season, and we just had a great attorney and a good friend of the firm come in. Ron came in and dropped some legal law and employment law on us and gave what I believe is some great [00:28:00] guidance on the building season and understanding how important it is to have your house in order, and really to have great policies and processes in it, and then have great communication and training. And unfortunately, sometimes even with all of that is a situation where it just doesn’t work and you and the employee need to separate. What are the things should our clients think or what anyone should think about?
Michael: Yeah, I mean, it was interesting because what you said resonated and what Ron said as far as doing the right things on the front end to mitigate risk. Yet, at the end, he said, more and more people that are active employee are making complaints and also acknowledging that you still got to do what’s best for the business. When you jokingly ask if you just fire them – but it does raise an interesting point that we face sometimes where it’s time to get rid of an employee, but it’s messy [00:29:00] from a risk perspective. And so, it may be that the employee’s complaining about something or just something that you have a really hard decision to make as a business. And even if you talk to someone like Ron and you’re like, okay, I am going to do what’s best for the business.
Michael: I’m going to have a strategy, an added thing that we’ll see sometimes or we’ll do sometimes is recommend doing some form of a severance agreement, where you try to end the relationship and maybe you’re giving them some sort of payment severance as part of it, but you’re also trying to land the plane smoothly. And that means that you know what other things you need to do to wind up the relationship and get releases so that it’s a clean slate. And so, if you find yourself in one of those situations where it’s kind of messy and you’re getting rid of someone, this could be a good strategy to mitigate risk.
Brad: No doubt. [00:30:00] Well, Michael, that’s all the time we have today, but audience members, we’ll be back next Wednesday when we have a guest who will let us know how to help people find your business. We will have brand marketing manager, Stephanie Torres, will join us to teach us all about best practices and ideas, on how to launch your brand and market it. Thanks again for joining us today. And remember, if you like this episode, please subscribe, make sure to give us a five star rating and share with your friends.
Michael: You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com.
Outro: ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney-client relationship. Reference to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues. [00:31:00]
